Ivan Perkovic Head of Economic Research

1. South East Business Development Advisory Group/Business Link Advisory Group South East Economy Update April 2011 Ivan Perkovic Head of Economic Research

2. Overview • Quarterly South East Business Snapshot Survey • GDP growth • Prices and inflation • Labour market • Confidence • The Outlook - GVA growth by Local Authority • Key challenges ahead

3. Business performance deteriorates Q1. Would you say that ,overall, your business/ organisation’s performance in the past 3 months has improved, remained stable or got worse? Base: All Respondents = 644 (South East England) Compared to results in Autumn 2010, there has been a statistically significant increase (indicated by the blue box) in the proportion of businesses reporting that their performance has got worse (from 28% to 36%). This is now almost twice the level of 19% recorded a year ago. • Business performance broadly stable in almost half (42%) of businesses in • the South East in the three months to February 2011. • Over one in three said it had got worse (36%) and one in five said it had • improved (22%). • Results partially reflect the impact of the bad weather in December.

4. Mixed performance across the region Net Balance -14 +2 -2 -2 -5 -16 -17 -22 -39 • Businesses in Berkshire, have enjoyed the strongest performance overall during • the past 3 months, followed by Buckinghamshire, Oxfordshire & West Sussex.

5. A surprise fall in GDP in Q4, activity recovers in early 2011 • Surprise fall in GDP in Q4. • Excluding the weather effect there was no growth in Q4. • Activity bounced back in January and February in the South East. • Second-fastest growth in new business in the last ten months in February in the region. • Weaker manufacturing activity and retail sales, but strong activity in services in March.

6. Inflationary pressures continue to build • Manufacturers and retailers continued to record much steeper increases in average input prices in the South East. • Sharper than expected increase in UK inflation – VAT, transport fares, commodities, duties. • Temporary effect as CPI (exc. indirect taxes) and Core Inflation relatively low? • The base rate going up – GDP Q1 preliminary estimates in late April, BoE Inflation Report in May.

7. Labour Market – so far so good? • Public sector employment in the South East falls by 12,000 in 2010. • Total employment up (+21,000 on Q,+49,000 on the year). • Employment in the South East is still some 70,000 lower than at its peak. • Gradual increase in unemployment in the region . • 282,000 ILO unemployed, up 12,000 on the year.

8. Falling claimant count unemployment • Claimant count unemployment well below the 1990’s peak. • Unlike in the 1990’s it started falling with the recovery of GDP. • Some 31,000 lower than at the end of the 2008/9 recession. • Significant disparities across the South East.

9. Claimant count falls across the region Claimant Count Unemployment rate (%) – Feb 2011 Change in Claimant Count Unemployment Percentage point, Feb 2010 - Feb 2011 • Higher unemployment along the coast, in eastern local authorities and larger towns and cities. • Claimant count unemployment falls across the region. • Greater falls in several largely coastal local authorities and E. Sussex than elsewhere. • Above the average unemployment and below the average decline in unemployment in Kent.

10. Redundancy notifications and the potential impact of the public sector cuts Redundancy notifications by sub-region, volume and sector, March 2011 Potential effect of public sector cuts on total employment, by Local Authority (District/Unitary) • Increase in redundancy notifications – public sector accounts for 44% (March 2011). • Significant cuts across the public sector from April 2011 – leads to the increase in redundancy notifications and unemployment. • Greater potential effect along the coast and in (largely) eastern Local Authorities.

11. Business confidence improves Q3. Over the next 3 months, do you expect the business climate in which your business/ organisation operates to improve, remain stable or generally get worse? Compared to results in Winter/ Spring 2010, there has been a significant fall in the proportion of businesses expecting the business climate they operate in to get worse (from 32% to 23%), suggesting that perhaps the bottom of the downturn has been reached in early 2011. • Expectations of the business climate in the next 3 months are mixed – 45% expect • the business climate to remain stable. • Compared to Autumn survey there has been an improvement in confidence.

12. Business Trends - next 3 months Net Balance +9 +2 -2 +15 +6 +12 +3 +3 • Business expectations regarding domestic orders and the volume of output more • positive over the next 3 months. • There is also more optimism regarding profit margins and cash flow.

13. A sharp fall in consumer confidence • A small recovery in business confidence in March (ICAEW). • Dip in confidence (BCC, Markit/CIMPS Manufacturing PMI), but strong service PMI. • Steep deterioration in household finances in March (Markit HFI). • Nationwide Consumer Confidence Index at its lowest level in the survey’s history in March.

14. The Outlook for 2011 county average • Slower GDP growth over short term but slightly faster thereafter (OBR). • Economy to re-balance – strong contribution to growth from trade and business • investment (OBR). • South East to outstrip UK and most other regions, but not London and the East • (Experian). • Significant disparities in GVA growth within South East counties (Experian).

15. Key challenges ahead • Fiscal tightening and its impact on consumption • Weaker demand for exports • Lending still constrained • Business investment fails to materialise • Inflation and tighter monetary policy • Housing market re-adjustment / the credit crunch v2.0

16. Thank you SEEDA Research & Economics Email: research@seeda.co.uk www: http://www.seeda.co.uk/what-we-do/economic-intelligence-and-research